HND Business Management Accounting Report: Lets Grow Ltd Analysis

This report delves into the realm of management accounting, providing a comprehensive analysis of its principles, tools, and systems. Focusing on Lets Grow Ltd, the report emphasizes the importance of management accounting in achieving organizational goals by analyzing financial data. It explores various management accounting systems, including cost accounting, inventory management, and job costing, highlighting their benefits and applications. A significant portion of the report is dedicated to the importance of management reporting, including budget reports, accounts receivable aging reports, and performance reports, and how these reports can be integrated into the organizational process. Furthermore, the report formulates a cash budget for the upcoming six months, analyzes different planning tools such as cash budgets, flexible budgets, and capital budgets, and provides a critical evaluation of Lets Grow Ltd's financial position. Finally, the report suggests management accounting systems the company could adopt to solve its financial problems and concludes with a summary of key findings and recommendations.

Management Accounting

INTRODUCTION...........................................................................................................................3
a. Management accounting and its system..................................................................................3
Importance of management reporting to Lets Grow Ltd.............................................................5
c. Formulating cash budget for upcoming six months.................................................................6
d. Analyzing uses and application of different planning tools....................................................6
e. Stating the MA systems that the company could adopt in order to solve it financial problems
.....................................................................................................................................................9
f. Providing critical evaluation of Lets Grow financial position.................................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Management accounting can be defined as the systematic practice of identifying,
measuring, analyzing and interpreting the financial data & information to business managers so
that the organizational goals can be achieved effectively and efficiently. Management accounting
is different from financial accounting as it takes into consideration both qualitative and
quantitative information that helps the management in making imperative business decisions.
The current study is on Let’s Grow limited and will emphasize on the importance of MA, its
principles, tools, and systems that can help in solving financial problems.
a. Management accounting and its system
Management accounting
Management accounting (MA) is the method that describes the accounting system with
the ability to assist the internal management team in maximising their profitability and
minimising the loss (Shields, 2018). It involves the application of different management
accounting system and techniques for processing the financial data of the organization which
assist the management in taking crucial business decisions.
Management accounting system and their essential requirements
There are various types of MA system which can eb implemented by the organization in
accordance with the requirement. A detailed description of some of the widely used systems is
stated below.
Cost accounting system
This accounting system is mainly used by the business organization with respect to the
products manufactured by it. It serves various purposes such as inventory valuation, cost control
along the profitability analysis. It tracks the raw material when it undergoes various production
processes (Guenther, 2017). The cost accounting system helps the manager of the organization in
determining how much stock is under process at different point of time.The essential requirement
of this system is to appropriately record the cost pertaining to various transaction and movement
of goods and also helps in exercising control over the costs and expenses of the business entity.
Benefits
 This accounting system helps in determining the profitable and non-profitable business
activities.

 It provides assistance in future planning with respect to the various process carried out by
it.
 It also assists in determining the profitability of each and every product periodically.
 This system helps in implementing control system on the utilization of resources and
other business supplies.
Application
 This accounting system is mainly used by the manufacturing concerns as it has lot of data
pertaining to costs of production.
Inventory management system
This system is employed to monitor the inventory of the organization. It provides a
centralized system which provides all the relevant reports which helps in effective management
of the inventory of the organization (Atieh and et.al, 2016). For manufacturing concerns having
complex production processes, it is will be very useful managing the stock gluts and shortages.
This system is essential for businesses because it provides assistance in determining the right
time and place to order the inventory which results into managing the cost related to storing and
holding of the same.
Benefits
 It assists in overcoming the situation of out of stock or over stocking.
 Assist in timely placing the orders of the supplies and materials.
 It also helps in making forecast with respect to the future trends.
Application
This system can be used by Lets Grow Ltd for monitoring and managing its inventory in
a cost effective manner.
Job costing
The job costing system is mainly preferred for the organizations where products are
manufactured as per the specification given by the customers (Zahller, 2017). It involves
collecting all the important information with respect to cost with a particular job. This method is
essential for the organizations where products are produced which are different from one another
with a significant cost.
Benefits:
 It helps in determining the efficiency level of the business on account of cost.

 It records the cost accurately which assist in implementing cost control techniques
effectively.
 This system assists the organization in identifying any defect in the production process so
that corrective actins can be taken on time.
Application
This method will help Lets Grow Ltd in evaluating its profits with respect to various job
undertaken by it.
Importance of management reporting to Lets Grow Ltd
There are different types of reports which is being used by the organizations in its
planning, controlling and decision making processes. Managers uses these internal accounting
reports for taking crucial business decisions.
Budget reports
These reports are prepared using the pat year’s budget and then adjustment is made in it
for the purpose of future forecast (Brown and et.al, 2017). It includes revenue and expenses of
the business. Business uses this budget to attain their business goals and objective by remaining
within the budgeted amounts. It will be helpful for Lets Grow Ltd for increasing its sales and
reducing the expenses.
Account receivable aging report
This report is prepared for effectively manging the cash flow of the organization in
respect to the customers to whom goods are provided on credit (Senzu and Ndebugri, 2017). It
provides the complete breakdown of the remaining balance of each of its customers with due
date. Along, it assists in identifying the any defaulters so that provision can be made for the same
and important changes in the credit policy can be made.
Performance report
This report is created with the purpose of reviewing the performance of the business
organization. It evaluates each employee individually. In large organization, the report is
prepared department wise. It is very useful for the businesses in taking important business
decision with respect to the future of the organization (Maas and Verdoorn, 2017). On the basis
of this report, the employees of the organization are being rewarded for their hard work and
dedication towards work while the underperformers are either laid off or dealt in a different
manner. It will provideLets Grow Ltddeep insight about the working environment of the

company on the basis of certain criteria. It will help in identifying any flaw in the system which
is affecting the performance of the employees. Therefore, this report is very important for the
businesses which help in measuring the effectiveness of the strategy.
Integration of MA system and reporting in the organizational process
The integration of MA system and reporting will assist the Lets Grow Ltd in effectively
achieving its desired goals and objectives. It will help in proper and systematic management of
the business operation and activities because of the timely availability of the information.
Integration of these two will lead to identifying the weaknesses of the company so that remedial
actions can be taken on time which will lead to increase in performance and productivity of the
organization. This helps in better and improved decision making and direction for effective
planning.
c. Formulating cash budget for upcoming six months
Particulars March April May June July August
Sales (received in
same month) 30000 36000 24000 28000 32000 34000
Sales (received in
following month) 96000 120000 144000 96000 112000 128000
Total sales 126000 156000 168000 124000 144000 162000
Less: expenses
Purchases 50000 50000 70000 80000 90000 100000
wages 30000 30000 30000 30000 30000 30000
Rent (paid quarterly) 12000 12000
Depreciation 2000 2000 2000 2000 2000 2000
Variable overheads 10000 15000 18000 12000 14000 16000
Fixed overhead 30000 30000 30000 30000 30000 30000
Total expenses 134000 127000 150000 166000 166000 178000
Cash surplus / deficit -8000 29000 18000 -42000 -22000 -16000
Opening cash balance 20000 12000 41000 59000 17000 -5000
Closing cash balance 12000 41000 59000 17000 -5000 -21000
d. Analyzing uses and application of different planning tools
Cash budget- It refers to an estimation of cash flows for the business over the specified
time period. It is the budget that is used for assessing whether an entity is having adequate

amount of cash in operating. Company requires managing their cash flow to help them in
operating the business effectively and is essential to interpret cash budget and justifying the
suitable solutions with respect to the cash flow problems.
Advantages Disadvantages
Cash budget are counted as simple under which
you could withdraw a fixed amount of the cash for
the given timeframe and this is been used for
covering the expenses. This simplicity is reflected
as the main strength of the cash budgets over the
credit budgets as it helps in having a physical
control over the finances. It also enables in keeping
control over the spending and in remaining within
the budget.
This planning tool relies on the anticipation with
regards to the future sales and the future collections
that are received on such sales. Estimates limits on
the effectiveness of cash budget as factual
knowledge is not present.
This budget helps in saving the money as each and
every time an entity makes use of cash for buying a
raw material, physical act in handling such cash
would indirectly motivate in spending less amount
of money.
It is the budget that involves information relating to
company’s expected finance needs. Once
management view cash budget, they take decisions
on the basis of expected financing requirement
(Maas and Verdoorn, 2017). It an actual financing
need are resulted as less than budget, it means that
management already committed towards financing
the budget period. In case if actual need of
financing is greater than budgeted, this leads the
managers to cash deficit as they would not have
committed to sufficient financing.
Cash budget helps in seeing at the glance with
regards to the proportion of money that is left or
available that is turn helps in planning ahead and in
keeping within the spending limits.
At the time using this budget for assessing
financing needs and the financing options, non-
financial type of factors are been omitted.
With this budget, company’s monthly process of
budgeting seems as distilled simply tallying the
cash left at the month end and noting the place and
the amount that is been spent.
Manipulation can be made by the managers like
underestimation of expenses over the income in
order to show better cash position.

Flexible budget – It is the kind of variable budget which predicts production or the
output on the basis of changing level of the business activities.
Advantages Disadvantages
It helps in calculating sales, profits and the cost at
different level of output or operating capacity.
For preparing this budget skilled workers are
required which is seen as the biggest challenge for
the company.
It enables in determining amount or quantity of the
output that is to be produced for helping the form in
achieving desired level of profit.
It is considered as an expensive affair as skilled
workers need to hired and paid against their
services.
It assists company’s management in determining
production level in the different business conditions
and market.
It depends on the factors of production that does
not deemed in hands of management (Guenther,
2017). Thus, due to this predictions could be
inaccurate because of such conditions.
It is the budget which could be re-casted based
activity levels and is not found as rigid.
Analysis of the variance facilitates useful
information as each and every cost is assessed as
per its nature. Thus, it seems as difficult for experts
in framing flexible budget.
Capital budget –It is the budget that is prepared by company for evaluating potential or
profitable investment or major projects.
Advantages Disadvantages
It enables the company in understanding the
associated risk to project and its impact.
In this the decisions are seen as long term and
mainly irreversible in the nature.
It helps in choosing the most suitable options and
in making best possible decisions with regards to
investment opportunities.
Uncertainty results to wrong applicability and the
techniques under this are assumed and not seen as
real.
This budget enables in increasing the wealth of the
shareholders in the market.
This budget is counted as introspective in the
nature because of the subjective risk and the
discounting factor.
It ensures adequate control over the expenses and
abstains from under or over spending.
Wrong decision impacts the long run durability and
availability of the skilled professionals does not
seem as easy.

e. Stating the MA systems that the company could adopt in order to solve it financial problems
Key performance indicator- It refers to the measurable value that depicts an effective
way in which a firm is attaining its key organizational objectives. Organization makes use of
KPIs for the purpose of evaluating their respective success in reaching the target market. It helps
in resolving the financial problems relating to inefficiency in performance of tasks, delay in
achieving goals etc.
Benchmarking – It is a strategic tool which allows an enterprise in setting goals and in
measuring productivity based on the practices of best industry (Shields, 2018). It is the practice
within which the quality level is been used as the reference point for evaluating the things by
way of making comparisons. It enables in overcoming the financial problem in relation to
competition, ineffective strategies etc.
Balanced scorecard- It is the strategic performance metric that is used for improving and
determining several internal functions of the business & their resulting outcomes. This system is
used for measuring and providing the feedback to the company and is found as important in
providing the quantitative results as the executives and the managers so that any problem relating
to funds could be resolved in an effective and efficient manner. It helps the firm in viewing the
organization through 4 major perspectives that is financial, growth, customer and the internal
processes.
Variance analysis –It refers to the study of the deviation between actual and planned
behavior in budgeting or MA. It helps in keeping effective controlling over the performance of
the company and also helps in taking corrective action for ensuring that the gap does not resulted
between budgeted and actual figures (Atieh and et.al, 2016). It enables in resolving financial gap
that id non-availability of the funds, lack of resources etc.
f. Providing critical evaluation of Lets Grow financial position
As the cash budget prepared it has been seen that the financial position of Lets Grow Ltd
in starting months would be better as expenses will be less than cash inflows. However in the
latter months, firm’s cash position would get poor as its expenses would be increasing higher

than its cash inflows and this clearly shows that company need to take appropriate steps in order
to make its cash position better.
CONCLUSION
From the above study it can be concluded that MA is an essential for every business as it
helps the top-level management and business managers in making strategic decisions to
minimize unnecessary expenditures and maximize the profits of the organization. The report
explained the utility of MA tools like cost accounting, job costing and inventory management
system whose main objective is to reduce the cost of products and services and increase the
overall revenue of the enterprise so that desired goals and objectives can be accomplished. It also
included several planning tools that an organization must use to ensure smooth and systematic
working. Thus, at the end it can be stated that it is essential to use MA in the business to achieve
incessant growth and success.

REFERENCES
Books and Journals
Atieh, A.M. and et.al, 2016. Performance improvement of inventory management system
processes by an automated warehouse management system. Procedia Cirp. 41. pp.568-
572.
Brown, J.L. and et.al, 2017. The effect of budget framing and budget-setting process on
managerial reporting. Journal of Management Accounting Research. 29(1). pp.31-44.
Guenther, E.,2017. Material flow cost accounting in the light of the traditional cost
accounting. uwfUmweltWirtschaftsForum. 25(1-2). pp.5-14.
Maas, V.S. and Verdoorn, N., 2017. The effects of performance report layout on managers’
subjective evaluation judgments. Accounting and Business Research. 47(7). pp.731-751.
Senzu, E.T. and Ndebugri, H., 2017. Account receivable management across Industrial sectors in
Ghana; analyzing the economic effectiveness and efficiency. Cape Coast Technical
University, Bastiat Institute Ghana, https://mpra. ub. uni-muenchen. de/80014.
Shields, M.D., 2018. A Perspective on Management Accounting Research. Journal of
Management Accounting Research. 30(3). pp.1-11.
Zahller, K.A., 2017. Truffle in paradise: Job costing for a small business. Journal of Accounting
Education. 40. pp.32-42.